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Equity and Time to Sale in the Real Estate Market

  • David Genesove
  • Christopher J. Mayer

Recent research has proposed a pro-cyclical link between sales volume and prices in the real estate market through changes in the equity of existing homeowners. This article uses data from the Boston condominium market to show that owners with high loan-to-value ratios take longer to sell their properties than owners with low loan-to- value ratios. Properties with high loan-to-value ratios are listed at higher asking prices; when sold, they receive higher prices than units with less debt. Together, these results are consistent with a search model in which owners 'constrained' by large amounts of debt set a higher reservation price than 'unconstrained' owners, accepting a lower probability of sale in exchange for a higher final sales price.

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File URL: http://www.nber.org/papers/w4861.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4861.

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Date of creation: Sep 1994
Date of revision:
Publication status: published as American Economic Review, june 1997.
Handle: RePEc:nbr:nberwo:4861
Note: IO
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  1. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  2. Karl E. Case & Robert J. Shiller, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," NBER Working Papers 2748, National Bureau of Economic Research, Inc.
  3. Jeremy C. Stein, 1993. "Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects," NBER Working Papers 4373, National Bureau of Economic Research, Inc.
  4. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  5. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
  6. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  7. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
  8. Barton A. Smith & William P. Tesarek, 1991. "House Prices and Regional Real Estate Cycles: Market Adjustments in Houston," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 396-416.
  9. Christopher J. Mayer, 1993. "Taxes, income distribution, and the real estate cycle: why all houses do not appreciate at the same rate," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-50.
  10. Lawrence D. Jones, 1989. "Current Wealth and Tenure Choice," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 17-40.
  11. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
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